Evidence that Government is cutting 2012 capital programme to meet budget targets

“The second area is what we can do at the euro area level to create jobs, basically by increasing investment and enhancing infrastructures. There are many proposals, such as increasing the European Investment Bank (EIB) action and redirecting the EU funds towards the low income areas. When we talk about infrastructure and fiscal consolidation, it is certainly much better to consolidate through the reduction of expenditure, especially current expenditure and not capital or investment expenditure, rather than through increases in taxes” ECB president Mario Draghispeaking in May 2012

“Point One – Protecting and creating jobs. Because jobs and opportunity are the best chance of keeping our best asset – our young people – at home. We plan to create 20,000 new jobs a year over the next four years. How? By cutting employers’ PRSI, by creating a welfare system that encourages work and by investing an extra €7 billion from State pension funds and from the strategic sale of state assets into developing the key infrastructures that will make our economy competitive for the future. In doing so, we can, by 2016, make Ireland the best small country in the world in which to do business” Fine Gael’s Five Point plan promoted during General Election 2011

Yesterday’s Exchequer results for September 2012 were not good. Whilst tax was up on plan in the month of September 2012 by €20m during the month which gave a tiny boost to the State’s finances, government spending was up on plan by €21m. However this overall neutral outcome hides the fact that at the end of August 2012, our spending on capital projects was €120m down on plan but at the end of September 2012 was down a whopping €268m on plan.

We are all aware of the recent scramble to rein in spending on health for the remainder of this year but it seems at this stage that it will still be a challenge to hit our budget targets. Luckily GDP in 2011 was slightly higher than expected and even though GDP might only marginally grow in 2012, we should still meet the all-important Troika-agreed target of a deficit:GDP of 8.6%.

But what is extraordinary from yesterday’s Exchequer figures is the fact that this government has seemingly chosen in 2012 to dramatically cut the capital budget. Figures provided yesterday by Minister for Public Expenditure and Reform in a response to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty, confirmed that for the nine months of 2012 to the end of September, we have only spent €1.7bn (47%) of the €3.6bn total capital budget for 2012. Not only that, but this Government claims that it cannot at this advanced stage of the year provide a forecast of the full year capital spend – this is incredible and one obvious reason for the “mar dhea” ignorance is the capital budget is being cut. The Minister even refused to provide a split of the budget and actual year-to-date by department, so that we could further examine why spending was down.

Or to put it another way, this Government is cutting the capital budget which gets spent in the domestic economy because it is failing to cut costs elsewhere.

Just take health – 80% of our medicines are expensive non-generic, in the UK it is just 20%. Hospital consultants’ pay for existing consultants has been left untouched. Of all the countries in the world, Ireland spends the second highest amount on public health as a proportion of our GDP (Number 1 is the USA), yet our health outcomes are surprisingly bad in the global league tables, or in plain person’s speak – our spending on health is inefficient.

Economists will tell you that one of the most effective ways of generating domestic economic growth is through construction which tends to rely on local labour and raw materials and management. A large part of the capital budget comprises construction. The Department of Finance has estimated that €1bn spent on capital projects generates 10,000 jobs. NAMA says that its €2bn spend on developing its assets will create 25,000 construction jobs and 10,000 consequent jobs, a total of 35,000 jobs for €2bn.

So if we had planned the capital budget this year to be spent evenly we would have spent €2.7bn by now, €1bn more than the actual spend of €1.7bn to the end of September. Why didn’t this government frontload that expenditure in its budget. But having set the budget so as to spend €1.95bn by the end of September, why is actual expenditure down €236m.. An extra 2,500 – 4,500 jobs might have been created if the government had been spending to plan, an extra 10,000 – 17,500 might have been created if the government had budgeted to spend its capital budget evenly throughout the year and met its budget. Does this Government realise there are 309,000 people unemployed in the State, equating to a 14.8% unemployment rate and that 450,000 are on the Live Register. And 240 of us are emigrating every single day of a 365-day year.

Perhaps someone should ask our €250,000* a year Minister for Finance why the cost of running the country is over budget and why this Government is choosing to damage the domestic economy by pulling back on capital expenditure.

Deputy Pearse Doherty: To ask the Minister for Public Expenditure and Reform if he will provide an analysis of actual infrastructure and capital investment spending by Ministerial Vote Group for the year to date in 2012; and a forecast for the annual outturn for 2012 together with the annual budget for 2012.

Minister for Public Expenditure and Reform, Brendan Howlin: The Exchequer returns were published this afternoon and are available on the website of the Department of Finance and via my own Department’s website. The total net Exchequer capital spend to end September amounted to €1.7 billion. This represents 47% of the total net capital estimate (€3.6 billion) for the year, which means that €1.9 billion remains to be spent. For the same period last year, capital expenditure of €2.2 billion accounted for 50% of the 2011 net provisional outturn figure of €4.4 billion.

Individual Departments are responsible for the projects and programmes in their areas and further details about spending on projects and programmes can be obtained directly from the relevant Departments. Given the uncertainties about precise issues of timing, and given the over-arching requirement to manage both capital and current expenditure within the overall allocations, it is too early at this stage to say what the final capital outturn for 2012 will be for each area.

As the Deputy will be aware, capital spending has general characteristics which influence the allocation drawdown pattern. Expenditure on capital projects typically occurs in large tranches at fixed milestones, unlike current expenditure which is generally continuous throughout the year. Obviously, this affects the phasing and profiling of capital expenditure.

In addition, public financial rules require that payments are only made on foot of matured liabilities, so payments made in the later parts of the year are made on foot of work that has already been satisfactorily completed. The trend is therefore that the bulk of capital expenditure takes place in the final quarter of the year.

Reblogged this on Hugh Sheehy – idealistic musings and commented:
This data indicates again that this current Irish government does not actually care AT ALL about getting the Irish economy into recovery. They may care about other things, like their pensions, securing sectoral votes in the next election, pleasing the PS unions, and so on, but Irish economic recovery is NOT a goal they’re actually pursuing.

@ NWL As a point of clarification – there are two Michael Noonans. The current Minister and a former FF TD who represented Limerick West for 28 years.

The sitting member would have been entitled to a pension in 2011 until his appointment as a Minister. Tellingly unlike many of his colleagues he did not surrender all or part of his pension.

He is of course also entitled to a pension from Dept. of Education which from his register of interest returns for 2011 has been surrendered in full. However this seems to have been the first time this was done.

@Niall, thanks, I did not know there were two Michael Noonans. The report on individual minister’s pensions has been removed from the DoF website, so I am basing this on memory – the second Michael Noonan was shown as “ML Noonan” and the wikipedia entry for the “other” Michael Noonan identifies him as Michael J Noonan

@ NWL He was also a junior minister at one stage, but as he didn’t stand out I can’t remember for how long.

I suppose the basic point is that the current Minister was happy until recently to draw a variety of pensions.

However my current favorite snot in the trough is Finian McGrath. Apart from drawing a ‘Leader’s Allowance’ (leader of what), he also is drawing a pension as a retired principal. However he describes it as follows in his declaration of interests ‘I am now retired from that position.’

The assault on easy targets continues unabated, as does the search for real political leadership.

For Ireland to ever become a grown-up country, those with all the power & influence will have to give up some of that power & influence. In effect, we have a situation where those with all that centralised power will have to relinquish some of that power. That is, they’ll have to make their own lives a little less comfortable than they are at the moment (relatively speaking, of course).

What are the chances of of that?

Without such a revolutionary shift, however, Ireland will continue to stagger from one crisis to another.

Hold on a minute! Much capital expenditure during the boom was inefficient and had large cost overruns. Reducing capital spending can cut out waste and vanity projects. Where I work in the HSE I see huge waste in capital expenditure. Remember the tens of millions spent on the Mater Children’s Hospital to date with not a block in place? All that money was classified as capital expenditure.

I fear though that we will move towards PPP’s which the Chief Architect in a part of the PS once described to me as a means of delivering low quality at high cost. These (currently infamous) Primary Care Centres are all PPP’s and are a great example of this. The HSE locks itself into high rents for 20 years and then either leaves the building or negotiates a new rent with the developer. These new Primary Care Centres will not operate out-of-hours and, for the ones I am familiar with, deliver NO new services nor do they have energy-saving features for example. These expensive Primary Care Centres are simply the provision of even nicer offices for Physiotherapists, Public Health Nurses, Child Psychologists, dentists, etc. Of course they do provide nicer waiting facilities for the public and this is not to be sniffed at but, personally, I would prefer to see that money spent on, for example, the actual provision of greater dental services for children, and for existing health centres to open longer hours and at weekends with a GP on duty. This could really prevent members of the public having to go to their local A+E at the weekend if little Johnny gets a cut over his eye.

@Bunbury, of course you are right and there would be limited benefit to the State of constructing the 21st century version of Burkes Follies. And I share your fears for Public Private Partnerships (PPPs) which can be a valid means of getting private sector investment in the delivery of public services, but can also be inefficient and wasteful if not managed correctly, and there is evidence from our neighbours in particular that some PPPs can be inefficient, but as we saw with the G4S provision of security to the Olympics, contracts can be structured to penalise poor performance and with proper oversight PPPs can deliver value for money, though people are still smarting about the arrangement between Treasury’s National Convention Centre and the State.

But leaving both issues – unneeded projects and PPPs – aside, comparisons with level of capital spend in the EU suggest that the €3.6bn in this year’s budget is a bare minimum. But of course it should be prioritised. But remember this Government came to power in March 2011, and even taking account of some long lead-times before the “sod can be turned”, it is surprising that the Government did not frontload the phasing of the spend, but it is worrying that in September alone the underspend on capital spending doubled from €100m to €236m.

Is there anywhere I can see how my pension fund money has been spent? It’s supposed to be ringfenced for job creation, so I’d like to see how it’s performing.

I would recommend we keep an eye on certain ‘expenditure cuts’ that just push extra costs on to the public. For example a gov. may reduce payments to public transport companies and they, in turn, increase fares. So on one measure the gov reduce spending; but at an aggregate public level spending has not been reduced. It is the latter that is more important as this is aslo the pool who pay tax. In a way taxpayers are being sqeezed both ways through higher taxes and certain ‘expenditure cuts’.

It’s not appropriate to assume that expenditure cuts reflect efficiency gains or service cuts, when it’s clear some cuts are really transfering costs on to the public ( or large segments of the public). Gov. should focus on reducing the cost of living.